3rd International Conference on Management Education Information Control MEICI 2015 Agricultural Supplier s Sale Mode Choice Under Dual- Supply Chain Bei Xia School of Agriculture Yangzhou University Yangzhou Jiang Su 225002 China angelkittybei@163com Keywords: Agricultural supplier; E-commerce; sale mode; Dual Abstract In this paper we make a major contribution by examining an agricultural supplier s online sale mode choice That is for the supplier which online sale mode should be adopted his own online store an online retailer or a bricks--clicks retailer? To end this we first study the price decisions under the three kinds of possible online sale modes We then compare the price decisions among these modes We find that when the supplier adopts his own online store the online offline price are both lowest in these modes Based on it we compare the supplier s profits find that the mode of adopting his own online store can always lead the supplie r to get higher performance That is if the supplier has the ability to operate his own online store he'd better set up his own online store Lastly we use numerical examples to illustrate our analytic findings gain more insights Introduction According to china e-business research center 2015 in 2014 the e-business of agricultural products market transaction amount in china has reached $42 billion compared to 2013 increased by 100% [1 Following the rapid development of e-commerce many agricultural suppliers begin to develop online in addition to their existing traditional However they face a strategic decision on which online sale mode should be adopted The first mode is that the agricultural suppliers establish their own online sell agricultural products to consumers directly mode A as shown in Fig 1a The second mode is that the agricultural suppliers develop online by adopting an online retailer mode B as shown in Fig 1b The third mode is that the agricultural suppliers develop online by adopting a bricks--clicks retailer mode C as shown in Fig 1c To the best of our knowledge this paper is the first time to study the issue of online sale mode choice Almost all extant research mainly focuses on whether the supplier should establish online shop as a direct in addition to his existing indirect retail ie single VS dual Chiang et al 2003 further consider the customer acceptance of an online direct establish a new dem model They find that the supplier should adopt dual- when the customer acceptance is strong enough [2 Liu Zhang 2006 find that the supplier can benefit from the dual- strategy However under the dual- the retailer is always worse off [3 Xia et al 2013 identify factors that affect the supplier's motivation to use dual- distribution 2015 The authors - Published by Atlantis Press 1557
when the supplier produces two complementary products [4 Chen et al 2012 find that the supplier the retailer both can benefit from the dual- supply chain [5 The above-mentioned studies only consider the dem dependent on price But in real life the dem is also affected by the quality of service Therefore Dumrongsiri et al 2008 further consider retailer supplier s service quality simultaneously They find that the marginal costs have a major impact on the supplier s decision [6 Xu et al 2012 extends the work of Chiang et al 2003 by investigating how price delivery lead time decisions affect choice strategy [7 The above Literatures just consider the supply chain structure which consists of a retailer a supplier Ma et al 2012 extend one supplier to two suppliers find that both dominant supplier retailer can benefit from the dual- strategy [8 Hsiao Chen 2013 construct a theoretical model with competing suppliers an active retailer to explain why many leading suppliers opt not to sell online [9 Supplier Supplier Supplier Customer Customer 1a 1b Fig 1 Bricks-clicks Customer 1c Supplier s three possible online sale modes Model assumptions notation In this section we introduce the model of the mode A The supplier produces a single product at production cost per unit supplies the offline retailer at a wholesale price The retailer distributes the product through an offline only sets a unit selling price Simultaneously the supplier establish his own on- line store to sell his product at price Following Hua et al 2010 [10 we assume that the dem functions are linear in self- cross-price effects We use to denote the offline online s dem respectively Therefore the offline online s dem are 1 2 Where represents the base dem of the product represents the degree of customer preference of the online denote the coefficients of price elasticity of respectively denote cross-price sensitivities Generally the impact of own s price on own s dem is greater than cross-price effects so we assume To maintain analytical concisely we assume is exogenous variable 1558
Meanwhile to ensure the dem is positive we define Sales price decision In this section we mainly investigate the price decisions under the three kinds of possible online sale modes Mode A In the mode A the supplier distributes product through an offline retailer his own online store We assume the supplier offline retailer have balance power ie the supplier offline retailer decide online offline price simultaneously For clarity we add superscript to denote mode A The supplier retailer s profit denoted as are given by [ 3 [ 4 We then study the existence uniqueness of Nash equilibrium in their offline online price We can have the following Proposition: Proposition 1 There exists a unique Nash equilibrium in the detailed Nash equilibrium solutions are Mode B In the mode B the supplier distributes product through an offline retailer an online retailer We assume the online offline retailer have balance power ie online retailer offline retailer decide online offline price simultaneously For clarity we add superscript to denote mode B The offline online retailer s profit denoted as are given by [ 5 6 We then study the existence uniqueness of Nash equilibrium in their offline online price We can have the following Proposition: Proposition 2 There exists a unique Nash equilibrium in the detailed Nash equilibrium solutions are The proof of proposition 2 is similar to the proposition 1 so we omit it Mode C In the mode C the supplier distributes product through a bricks--clicks retailer For clarity we add superscript to denote mode C The online offline price decision are made to maximize the following the bricks--clicks retailer s profit : 1559
[ 7 From Eq 7 we can easy to check Hessian Matrix is a negative definite We then can get the following Proposition: Proposition 3 The bricks--clicks retailer s profit function is jointly concave in the optimal price decisions are characterized by sale mode choice In this section we mainly focus on the agricultural supplier s online sale mode choice ie which online sale mode is better for the supplier To end this we first compare the price decisions among the three kinds of possible online sale modes We then can get the following Proposition: Proposition 4 ; ; From Proposition 4 we know that under the mode A the online offline price are both lower than that under mode B mode C The customer can benefit from the mode A However it is difficult for us to compare price between mode B mode C We then compare the profits then we can get the following Proposition: Proposition 5 From Proposition 5 we know that if the supplier has the ability to operate his own online store the optimal online sale mode choice is mode A ie establishes his own online store However we are hard to compare profits between the mode B mode C Therefore we will discuss it by using numerical examples in next section Numerical examples In this section we firstly study that if the supplier does not have the ability to operate their own online store which mode is better for him We then will discuss which mode is better for the entire supply chain We use the following numbers as the base values of the parameters: Observation 1 Under mode B the supplier s profits is higher than that under mode C From Fig 2a numerical results can confirm observation 1 It implies that if the supplier does not have ability to operate their own online store his best choice is to adopt an online retailer to develop online In additional From Fig 2 we also can find that when supplier adopts mode C the degree of customer preference of the online has no impact on the supplier s profits Observation 2 When the degree of customer preference of the online is low the supply chain s profits under mode B is higher than that under mode A or mode C Otherwise the optimal online sale mode choice is mode A for entire supply chain For clarity we use to denote the profits of supply chain From Fig 2b numerical results can confirm observation 2 From Observation 2 we know that when the degree of customer preference 1560
of the online is low the supplier s online sale mode choice is not consistent with supply chain s choice That is under this condition supplier s choice undermines profits of the entire supply chain It implies that when the degree of customer preference of the online is low supplier or retailer can design a mechanism to coordinate lead the members of supply chain to achieve win-win situation Supplier's profits 2 x 104 18 16 14 12 1 S A S B S C Spply chain's profits 32 x 104 3 28 26 24 22 2 18 T A T B T C 08 0 02 04 06 08 1 2a Fig 2 16 0 02 04 06 08 1 2b Profits under three online sale modes Conclusions This paper is to answer the following important question: which online sale mode should be adopted for the supplier his own online store an online retailer or a bricks--clicks retailer? To answer this question under each possible mode we derive the optimal selling prices find the online offline price under mode A are both lower than that under mode B or mode C Based on it we compare the supplier s profits Our results show that the mode of adopting his own online store mode A is always best choice for the supplier Furthermore numerical examples lead to a few more managerial insights First if the supplier does not have ability to operate their own online store his best choice of online sale mode choice is to adopt an online retailer Second when the degree of customer preference of the online is low the supplier s online sale mode choice is not consistent with supply chain s choice Therefore supplier or retailer can design a mechanism to coordinate lead the members of supply chain to achieve win-win situation There are a few interesting topics for further research three are listed here First this paper assumes that the dem is certain In reality this may or may not be true Meanwhile agricultural production is greatly affected by the external environment so supply also exists uncertain Therefore we next will consider uncertain of dem supply simultaneously Second we next can study how to design a coordination mechanism to induce supplier to choice same online sale mode with supply chain Acknowledgments This work is supported by the Research Innovation Program of Postgraduates in Jiangsu Province No KYLX_1351 1561
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